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Hardman & Co Insight: IICS/REIFS – Tackling NAV discounts

Each one for itself

Executive summary
► Since the start of 2024, the share prices of the eight Infrastructure Investment Companies (IICs) and of the 18 Renewable Energy Infrastructure Funds (REIFs) have been generally weak – and, conspicuously, have failed to recover the losses of 2023.

► Undoubtedly, high interest rates have undermined the sector – and there is no certainty that they will fall significantly. Not only has this situation adversely affected NAVs, but the comparison with “risk-free” 10-year gilts is stark – the latter are currently yielding an attractive 4.5%.

► Over the past six months, there has been significant corporate activity in the sector. British Columbia Investment Management (BICM) acquired BBGI for just over £1bn at a price that was close to BBGI’s latest NAV. Harmony Energy Income has also exited the sector, having been bought by Foresight Group for £210m. Downing Renewables and Infrastructure seems set to follow suit, following a recommended bid of £175m from Bagnall Energy.

► Less satisfactorily, there are Managed Wind-Downs (MWD). While Triple Point Energy Transition is now delisted, five other MWDs are currently being undertaken. Aquila Energy Efficiency, Aquila European Renewables, Digital 9 Infrastructure, Ecofin US Renewables Infrastructure and VH Global Energy Infrastructure are all intent on selling their assets and on maximising shareholder value on realisation.

► NAVs of many sector stocks have fluctuated of late and some, notably Digital 9 Infrastructure, have plummeted ‒ from 79.3p per share at December 2023 to just 34.4p per share at December 2024. On the upside, 3i Infrastructure has managed to grow its NAV during 2024/25 – it rose from 362.3p per share to 386.2p. Cordiant Digital Infrastructure has also bucked the trend, with a 9.3% increase in EBITDA in 2024/25 compared with 2023/24.

► Currently, all 26 stocks ‒ except for Downing Renewables and Infrastructure, the target of a recommended bid ‒ are trading at a significant discount to their NAV. The average IIC is trading at an 18% discount (on an unweighted basis) to its NAV; the comparable discount (also on an unweighted basis) for the REIFs is now 29% (in both cases, stocks in MWD have been excluded). Not surprisingly, there are now many share buyback schemes under way.

► For the sector’s two bellwether stocks, the dividend record is fine – 3i Infrastructure is projecting a reassuring 6.3% rise in its dividend per share in 2025/26, while Greencoat UK Wind’s recent dividend record has impressed. For many others, maintaining dividends, in nominal terms, has been a real challenge. In HICL’s case, it has flagged a distinctly modest 1.2% dividend increase for 2025/26, its first such increase since 2018/19.

► The average prospective dividend yield (on an unweighted basis) for the IICs is currently 6.4%; the comparable figure (also on an unweighted basis) for the REIFs is 7.7% (in both cases, stocks in MND have been excluded). The REIFs yield clearly reflects the sharp decline in recent years of their share prices.


Read the full article written by Nigel Hawkins, Infrastructure and Renewables Specialist at Hardman & Co.